Question 1

While auditing the sales system of Candle Pty Ltd you have determined that there is a risk of sales being misstated, and that this potential misstatement is associated with the completeness assertion.Which of the following would be an appropriate audit response to this assessed risk?

Accepted Answer

A) For all debtors greater than 30 days overdue, evaluate whether there is appropriate correspondence with the debtor to encourage repayment of the debt. 
B) Select a sample of sales invoices and test to related shipping documents. 
C) Select a sample of shipping documents test to related sales invoices and the sales journal. 
D) Ensure that the sales order is appropriately authorised.

Question 2

An auditor will use test data to gain certain assurances with respect to the:

Accepted Answer

A) degree of keying accuracy. 
B) controls contained within the program. 
C) machine capacity. 
D) input data.

Question 3

Tests designed to detect payroll payments made after the end of the year that have been incurred in the current year provide assurance about management's assertion of:

Accepted Answer

A) Inspection 
B) Accuracy 
C) Occurrence. 
D) Cut-off.

Question 4

An auditor may decide to assess control risk at high for certain assertions because the auditor believes:

Accepted Answer

A) evaluating the effectiveness of control policies and procedures is inefficient. 
B) sufficient evidential matter to support the assertions is likely to be available. 
C) considering the relationship of assertions to specific account balances is more efficient. 
D) more emphasis on tests of controls than substantive tests is warranted.

Question 5

Selected items from the payroll register are compared to employee time-cards that have been approved by supervisory personnel.Which of the following assertions for payroll expense does this test?

Accepted Answer

A) Occurrence. 
B) Completeness. 
C) Accuracy. 
D) Cut-off.

Question 6

Which of the following procedures would be most likely to be considered a weakness in an entity's internal controls over payroll?

Accepted Answer

A) The personnel department sends employees' termination notices to the payroll department. 
B) The employee who distributes payroll cheques is responsible for later distributing unclaimed payroll cheques to the employees absent at time of payroll distribution. 
C) Payroll cheques are prepared by the payroll department and signed by the treasurer. 
D) A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department's payroll summary.

Question 7

The cut-off assertion for accounts payable involves testing whether all accounts payable are:

Accepted Answer

A) recorded at their correct amount. 
B) actually liabilities. 
C) recorded in the proper period. 
D) properly classified in the financial report.

Question 8

Which of the following tests of control most likely would help assure an auditor that goods shipped are properly billed? Checking that the client has:

Accepted Answer

A) scanned the sales journal for sequential and unusual entries. 
B) examined shipping documents for matching sales invoices. 
C) compared the accounts receivable ledger to daily sales summaries. 
D) inspected unused sales invoices for consecutive pre-numbering.

Question 9

For effective internal control, the billing function should be performed by the:

Accepted Answer

A) credit and collection department. 
B) sales department. 
C) shipping department. 
D) accounting department.

Question 10

In auditing the purchases system, an auditor vouches a sample of entries in the voucher register (accounting records) to the supporting documents.Which assertion would this test of controls most likely support?

Accepted Answer

A) Completeness. 
B) Occurrence. 
C) Accuracy. 
D) Classification

Question 11

Which of the following internal controls would be most likely to deter the lapping of collections from customers?

Accepted Answer

A) Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries. 
B) Segregation of duties between receiving cash and posting the accounts receivable ledger. 
C) Authorisation of write-offs of uncollectible accounts by a supervisor independent of the credit approval function. 
D) Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.

Question 12

Based on a study and evaluation completed at an interim date, the auditor concludes that no significant internal accounting control weaknesses exist.The records and procedures would most likely be tested again at year-end if:

Accepted Answer

A) the internal accounting control system provides a basis for reliance in reducing the extent of substantive testing. 
B) tests of controls were not performed by the internal auditor during the remaining period. 
C) enquiries and observations lead the auditor to believe that conditions have changed. 
D) the auditor used non-statistical sampling during interim compliance testing.

Question 13

Which of the following procedures most likely would not be included as part of an auditor's tests of controls?

Accepted Answer

A) Enquiry. 
B) Inspection. 
C) Analytical procedures. 
D) Observation.

Question 14

Assessing control risk at a level below high most likely would involve:

Accepted Answer

A) identifying internal controls relevant to specific assertions. 
B) changing the timing of substantive tests by omitting interim testing and performing the tests at year-end. 
C) reducing inherent risk for most of the assertions relevant to significant account balances. 
D) performing more extensive substantive tests with larger sample sizes than originally planned.

Question 15

When undertaking tests of controls which are related to controls built around a major transaction flow, which assertion would be of least interest to the auditor?

Accepted Answer

A) Occurrence. 
B) Accuracy. 
C) Cut-off. 
D) Valuation and allocation.

Question 16

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:

Accepted Answer

A) opening and closing inventory balances. 
B) cash receipts and accounts receivable. 
C) shipping and receiving activities. 
D) cut-offs for sales and purchases.

Question 17

Beta Pty Ltd posts to its perpetual inventory records directly from its sales invoices Inadequate control procedures over the invoicing function allow goods to be shipped that are not invoiced.The inadequate control procedures could cause an:

Accepted Answer

A) understatement of revenues, receivables and inventory. 
B) overstatement of revenues and receivables and an understatement of inventory. 
C) understatement of revenues and receivables and an overstatement of inventory. 
D) overstatement of revenues, receivables and inventory.

Question 18

Which of the following is not among the errors that an auditor might include in the test data when auditing a client's IT system?

Accepted Answer

A) Authorisation code. 
B) Numeric characters in alphanumeric fields. 
C) Illogical entries in fields whose logic is tested by programmed consistency checks. 
D) Differences in description of units of measure.

Question 19

In a properly-designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition and receiving report are verified.The next step in the system is:

Accepted Answer

A) approval of the voucher for payment. 
B) entering of the voucher into the voucher register. 
C) entry of the cheque amount in the cheque register. 
D) cancellation of the supporting documents.

Question 20

An approach to testing real-time processing of a computer-based information system is known as the integrated test facility (ITF) technique.This approach involves:

Accepted Answer

A) testing the computer hardware at the same time as test transactions enter the real-time system. 
B) validating as well as editing all input transactions entering the real-time system. 
C) running monthly activities simultaneously with current transactions so that the two are integrated in the result of the test. 
D) setting up a small set of records for a fictitious entity in the master files and then processing dummy transactions against the fictitious entity.

Exam 8: Tests of Controls